Two Europeans Win 2016 Economics Nobel for Contract Theory

The Nobel Memorial Prize in Economic Sciences in 2016 has been awarded jointly to a British-born American economist Oliver Hart, Andrew E. Furer Professor of Economics at Harvard University and a Finnish national  Bengt R.Holmström, who is currently the Paul A. Samuelson Professor of Economics at the Massachusetts Institute of Technology for their discoveries in Contract Theory. Both will jointly share the 8m Kroner prize money. “The new theoretical tools created by Hart and Holmström are valuable to the understan­ding of real-life contracts and institutions, as well as potential pitfalls in contract design.” Said the Nobel committee in its press release. 

Holstrom's multi-tasking model shows that if the manager's performance pay emphasizes short-term cash-flow, his actions may neglect the company's long-term health. Courtesy: ©Johan Jarnestad/The Royal Swedish Academy of Sciences

Molecular Machines Fetches 2016 Chemistry Nobel For Stoddart, Sauvage, and Feringa

This year’s Nobel Prize in Chemistry has been awarded jointly to UK-born Sir J. FraserStoddart of Northwestern University, Evanston, IL, USA, a French national Jean-PierreSauvage of University of Strasbourg, France, and Bernard L. Feringa of University of Groningen, of the Netherlands for their design and synthesis of the molecular machines. The trio will share the 8m kronor or USD 932,210 prize money. The nanomolecular machines developed by the trio are tiny. They could be used to deliver drugs within the human body and have potential applications in the pharmaceutical industry. They have the potential to unleash the whole new era in the design of smart molecules. 

Stoddart’s (a) Molecular Borromean Rings (Credit: M. Stone, Wikimedia Commons) and (b) Rotaxane-based Molecular Machines (Stoddart, J. F. et al. A Molecular Elevator. Science 2004, 303 (5665), 1845–1849).

The Real Measure of Success!

Whether you run a 2-member organization or a 2-million one; whether you run a small gram panchayat or a mammoth Parliament, the real measure of success lies in how well you enforce TEA -Transparency, Empowerment & Accountability - and nothing else, period! – Dr. M. Sirish

"Whether you run a 2-member organization or a 2-million one; whether you run a small gram panchayat or a mammoth Parliament, the real measure of success lies in how well you enforce TEA -Transparency, Empowerment & Accountability - and nothing else, period!" – Dr. M. Sirish

Thought-Provoking Insights from the Content Strategy MOOC

video credit: coursera.org

Climate Change and Low-carbon Economy

I would like to share this essay, which I wrote as part of the assignment for a MOOC entitled, "Climate Change," on Coursera. Rapid climate change driven by global warming associated with human activity is seen as one of the biggest threats to the future of humanity. The rate at which the increasing concentration of greenhouse gases (GHGs, primarily carbon dioxide, methane, nitrous oxide and chlorofluorocarbons) in the atmosphere is quite alarming. Greenhouse gases present in the atmosphere absorb thermal radiation emitted from the earth’s surface, thus acting as a blanket causing global warming.  Carbon dioxide is regarded as the most important of the manmade greenhouse gases blamed for raising the temperature on the planet (Figure 1). It is worth noting that GHG concentrations have increased from around 285 ppm CO₂e in the 1800s to around 445 ppm as on today and it is estimated that this is likely to reach 750 ppm by the end of this century. This could result in an eventual temperature increase of more than 5 ^oC compared with the pre-industrial era. In fact, the planet has not seen even 3 ^oC for about 3 million years and it is predicted that a 450 ppm gives rise to around 20% chance of greater than 3 ^oC [1]. Therefore, there is an urgent need to contain these greenhouse gas emissions into the atmosphere. Solving this problem poses unprecedented challenges to the mankind. It requires multipronged strategy involving scientific, technical, economic, cultural, social, and political elements and a switch towards low-carbon economy (LCE). 

Figure 1: Figure showing the overlay of the average global surface

temperature and atmospheric CO2 for the past million years follow

a similar trend. Notice that warmer temperatures and higher CO2 

levels as well as colder temperatures and lower CO2 levels correlate 

well with each other (top). Figure showing the history of atmospheric

carbon dioxide concentrations as directly measured at Mauna Loa,

Hawaii (bottom). Bottom Image credit: Narayanese, Semhur, and
NOAA via Creative Commons.

What is a low-carbon economy or LCE?

LCE is an economy characterized by low energy consumption, low emission, and less polluting. It is characterized by the range of activities which emit low levels of carbon dioxide into the atmosphere. In other words, LCE is higher energy efficiency and a cleaner energy structure which will maximize the value and growth across the whole economy [2].  Traditional economy focuses on the continuous growth, prosperity, costs and opportunities without paying any attention to the increased emissions of carbon dioxide into the atmosphere. LCE on the other hand emphasizes the need for sustainable growth with efficient use of resources, technology and man power, which are environmental-friendly compared to high carbon resource-intensive traditional growth economy.

In October 2006, British government issued a report “Stern Review on the Economics of Climate Change” by Sir Nicholas Stern, former chief economist of the World Bank. In the report, Sir Stern claims that with 1% of annual global GDP invested to address climate change, we could avoid future loss worth 5% to 20% of annual GDP [1]. He further called a transformation to LCE. According to Lord Stern, “The evidence shows that ignoring climate change will eventually damage economic growth. Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes. Tackling climate change is the pro-growth strategy for the longer term, and it can be done in a way that does not cap the aspirations for growth of rich or poor countries. The earlier effective action is taken, the less costly it will be."

For effective minimization of carbon dioxide emissions from all sectors in a LCE requires innovative solutions including new technologies and new energy sources. This will attract new ideas bringing new technologies from prototype to mass market and presents significant investment opportunities. These can include renewable energy sources such as marine or wind energy or other low-carbon technologies such as hydrogen fuel cells. Thus, a LCE not only opens up new investment opportunities but also new business as new markets emerge. Because LCE involves diverse sectors, the nature of its growth is also unpredictable unlike the traditional growth economy.

Need for Private and Public Sector Investment

LCE offers significant commercial potential and encourages private sector organizations to enter and capitalize on the revenues that are available in this area. Nearly, $2.5 trillion is estimated to be financed by the sources procuring low-carbon technologies.  A case in point is “The Carbon Trust” set up in UK. Their ventures like Connective Energy and Partnerships for Renewables are a great success [3]. Likewise there are many others who ventured in this sector such as Accenture, McKinsey and others [4]. There’s a need to spread this across the spectrum rather than limiting to few large companies. Climate bonds set up recently would suit this purpose very well. Climate bonds, which are defined as asset-backed infrastructure bonds designed specifically to finance climate change solutions like climate change adaptation measures and or mitigation projects that deliver genuine reductions in emissions. Climate bonds allow governments and/or private sector to raise funds to build renewable energy generation and related infrastructure, implement energy efficiency measures in cities and industries as well as support the adaptation measures. This market has touched more than $12 billion as per 2011 estimates [5,6].

Social and Cultural Costs

Climate change impacts the economic, social, cultural, and religious practices of all people of all religions in the world. Therefore, the cost of living, moving, eating, and consuming aspects of people across the globe plays a major role in mitigation and adaptation strategies of climate change and thereby the cost benefit analysis in a LCE as well [7]. It is estimated that the monetary losses as a result of global damages related to climate change will equal to 1.5% to 2% of Gross World Product (GWP, defined as the market value of all the goods and services sold throughout the world). This is an estimate for a single, unspecified year – the year when CO2e concentrations will have doubled, which is thought to occur in around 2050 or 2060 [8]. The Working Group III (WG3) of the Intergovernmental Panel on Climate Change (IPCC) also estimated damage costs of 1% to 1.5% of Gross National Product (GNP) in OECD countries and between 2% and 9% of GNP in countries outside the OECD.

Need for Ethical and Political Framework

The LCE does require ethical and political framework for the governments to support the low-carbon economic activities and development of new technologies. The governments are in a position to plan a long-term strategic perspective regarding the future development of these activities. The governments need to have proper agenda and plans in this direction if they were to cut the global carbon dioxide emissions. Governments need to identify the LCE as an area for global economic growth in the coming decades. The wider political, economic and social context must also be addressed. A coherent portfolio of policy measures and specific mechanisms is needed to drive the transition to a LCE and only the governments can play a critical role in doing so.

Role of Science and Technology

The research and development is a key for a LCE as it involves the development of new and high energy-efficient end-use technologies, natural energy technologies, employing innovative manufacturing techniques such as iron (steel) making techniques using hydrogen instead of coal as a reducing agent, which results in large reduction of CO₂ emissions,  building highly efficient zero-emission thermal power stations, advanced atomic power generation, highly efficient electric power transmission etc. Development of alternative energy sources involve the renewable energy sources including bioenergy, which may be used to produce electricity or heat for home heating and transport through biofuels, advanced solar power generation, and wind farms. Other areas of interest include hybrid technologies in cars driven by hybridized electric motors and batteries, all-electric battery vehicles or fuel-cell vehicles probably fuelled by hydrogen or the combination of the two, etc.  Production of Shale gas for example will reduce the overdependence on LNG as Shale gas life cycle emissions (especially methane leakage, more potent of GHGs) are thought to be lower compared to LNG [9]. Energy Systems Modeling (ESM) by UKERC is designed to develop insights into a range of scenarios of future energy system evolution and the resultant technology pathways, sector trade-offs, and economic implications [10].

Divide Between Developed and Developing Economies

According to Stern review, the poorest countries will be hit earliest and hardest by climate change, even though they have contributed little to causing the problem. Their low incomes make it difficult to finance adaptation. Therefore, the international community has an obligation to support them in adapting to climate change. Without this support, there is a serious risk that development progress will be undermined and also it is for the developing countries themselves to determine their approach to adaptation in the context of circumstances and aspirations of their people. Due to this economic and consumption mismatch between the developing and the developed world, many developing countries are unable to come to terms with any international agreements on climate change. The transfer of low carbon technologies – including some cleaner coal technologies - could play a pivotal role in creating incentives for developing countries such as China and India to enter a post-2012 Kyoto agreement.

Leadership and Regulation from an International Body

Taking cues from the Stern review, the key building blocks of any collective action include developing a shared understanding of the long-term goals of climate policy, building effective institutions for co-operation, and demonstrating leadership and working to build trust with others. Therefore, building and sustaining collective action is very much in need and there is still time to avoid this catastrophe of climate change if strong collective action starts now. Intense strategies are being pursued for a global agreement that will bring all countries to the table. They include funding by the developed countries in most of the investment and R&D to reduce greenhouse gas emissions and the transfer of technology at minimal or zero cost to developing countries; and the developed countries to transfer funds to developing countries in exchange for cost of effective reductions of pollution. Let’s hope a global treaty on climate change, which remained elusive would be a reality sooner rather than the later.

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[1]. Stern, N. Stern Review on the Economics of Climate Change, 2007, Cambridge University Press, Cambridge, UK.

[2]. Shengxian, Z. In “Introduction of Low-carbon Economy” Kunmin, Z.; Jiahua, P.; Depeng, C (Eds.) 2008.

[3]. Delay, T. Low-carbon Economy – What are the opportunities? The Guide to the UK Environmental Industry, 2008, p.53.
[4]. Whitehouse, S.; Lacy, P.; Veillard, X.; Keeble, J.; Richardson, S. Carbon Capital - Financing the Low-carbon Economy, Social Intelligence Series, 2011, Barclays, London.
[5]. Kidney, S.; Mallon, K.; Silver, N.; Williams, C. Financing a rapid, global, transition to a Low-carbon Economy, Climate Solutions II: Low Carbon Re-Industrialiazation, A Report to WWF International, 2009, Climate Risk Ltd.
[6]. Kidney, S.; Clenaghan, S.; Oliver, P. Climate bonds – the investment case, Bond Markets, City UK Financial Services, 2011.
[7]. Kysar, D. A. Climate Change, Cultural Transformation, and Comprehensive Rationality, Faculty Scholarship Series. Paper 383, 2004, 555-589. Retrieved 20 October 2013 from http://digitalcommons.law.yale.edu/fss_papers/383
[8]. Meyer, A.; Cooper, T. A Recalculation of the Social Costs of Climate Change, Global Commons Institutet Report, London, UK, 1995.
[9] Joffe, D. A role for Shale Gas in a Low-carbon Economy, Modelling at CCC, 2012. Retrieved on 20 October, 2013 from www.theccc.org.uk/blog/a-role-for-shale-gas-in-a-low-carbon-economy/
[10]. Anandarajah, G.; Strachan, N.; Ekins, P.; Kannan, R.; Hughes, N. Pathways to a Low Carbon Economy: Energy Systems Modelling, UKERC Energy 2050 Research Report 1, 2012, UKERC/RR/ESM/2009/001.

Union Cabinet Clears Telangana

Indian Home Minister, Mr. Susheel Kumar Shinde announcing the Cabinet's 

decision to clear Telangana on Thursday.

After intense deliberations that lasted for over three hours, the Union Cabinet at its meeting on Thursday formally cleared the Telangana draft bill bifurcating South India’s largest state of Andhra Pradesh. Addressing the press conference soon after the meeting, Union Home Minister, Mr. Susheel Kumar Shinde said that the newly formed Telangana State comprises of the same 10 districts of the erstwhile Hyderabad state of 1956 with Hyderabad as its capital. The ten districts of Telangana include Adilabad, Hyderabad, Karimnagar, Khammam, Mahbubnagar, Medak, Nalgonda, Nizamabad, Ranga Reddy, and Warangal. Mr. Shinde also said that Hyderabad will act as the common capital for both the divided states for 10 years and that the law and order machinery during this period would rest with the governor of the newly formed Telangana state. Mr. Shinde also said that a committee would be constituted which will then decide on the capital for the residuary state of Andhra Pradesh within a period of 45 days. Mr. Shinde further added that the Polavaram multi-purpose irrigation project across the Godavari River will be constructed wholly by the center after securing all the approvals from the ministry of environment and forests. The project when completed will irrigate the upland areas of Visakhapatnam, East and West Godavari and Krishna districts apart from providing drinking water to the Visakhapatnam city.  

An Experiment With The History Of Internet

Come November, the focus shifts to the internet ─ the great significance this month has in the history of the World Wide Web. It was in November 1990 the British-born Tim Berners Lee submitted the final project proposal entitled WorldWideWeb: Proposal for the HyperText Project to CERN, the European Organization for Nuclear Research, which led to the discovery of World Wide Web or simply Web, the way of accessing information over the medium of internet. The Web uses hyper text transfer protocol (HTTP) to transmit data and services over the internet. In this backdrop, I would like to share here my first experience with the internet and the World Wide Web. Although I worked with computers since 1988, starting with the fourth generation IBM XT 286 computers during my post graduation till the most modern ones today, my real sojourn with internet began sometime in mid 1995. It was in 1995 when I was doing my Ph. D. at a university in India. Those were the days; the internet was just beginning to take shape in the select few universities and academic institutions in India. Being a top-rated university in India, University of Hyderabad has been chosen to host one of the regional hubs for internet access, a privilege very few centers of excellence enjoyed at that time. I still vividly remember how I used to type simple text commands on a UNIX-based Sun Microsystems computer to browse the internet only to see a lengthy text in return at snail’s pace because of the prevailing low bandwidth at that time and also the images/graphics were not prevalent as they are today. Lot of browsing went with texting instead. It was an amazing experience indeed! Later on, I started to communicate through email, which came into being in late 1995. Since, we, students did not have the email facility at that time as it was just evolving; I used my mentor’s address initially to communicate with my peers in the field to exchange ideas and/or research data during my thesis phase from both within and outside the country. I don’t exactly remember what my first email communication on the internet was, but vaguely, it was something to do with a business mail, a symposium-related one that I was replying to the organizing committee thanking them for accepting my presentation at the conference organized by the Indian Academy of Sciences in Bangalore, India. In that sense, I didn’t have much privacy those days because the mails were to and from my mentor’s address and I get a copy of the print out whenever they concerned me.

Bletchley Park – the birthplace of world's first electronic computer. 

Image credit: Draco via Creative Commons.

It was in Oxford, UK that I got my first official email when I moved there as a postdoctoral at the University of Oxford in 1996. It was a great experience indeed! It was here in Oxford, my exposure to the full-fledged internet came into being. It was in the historic Dyson Perrins Laboratory building (1916-2004, Department of Organic Chemistry) at the University of Oxford that I accessed for the first time some of the oldest, largest, and most modern chemical databases and journals on a daily basis on the internet in pursuit of my larger research interests. Though I visited Cambridge and London several times during my stay in England attending conferences or on collaborative work meetings, what I didn’t know at that time was the significance of Bletchley Park near Cambridge, which played a key role in the victory of Allied forces and the birthplace of world's first electronic computer.  It’s really amazing to know that the entire Bletchley Park laboratory (close to where I worked 50 years later) was set up to decode wartime messages from German forces during the Second World War and the father of computing Alan Turing broke some of the highly secretive codes of German Enigma, which subsequently laid the foundation for one of the major discoveries the world has ever seen, i.e., the internet, and the World Wide Web almost fifty years later by Tim Berners Lee and Robert Calliau from CERN, Geneva ─ the Mecca of experimental Physics I would say, where Physicists from all over the world would love to visit, work, and collaborate with and while doing so they tend to make some of the best discoveries; a case in point being the discovery of ‘God Particle,’ Higgs Boson in 2012, which fetched this year’s Nobel Prize in Physics for Peter Higgs and Francois Englert ─ virtually transforming the world and the way we conduct our lives today. No surprise, World Wide Web would remain as a feather in CERN’s cap.

Internet users per 100 inhabitants based on data from International Telecommunication Union (ITU) Internet users 2001-2011 and Key Figures 2006-2013. Image credit: Jeff Ogden via Creative Commons.

When I moved to Germany in ‘97 on an “Alexander Humboldt Fellowship” at the University of Saarlandes, Saarbrucken situated next to French border; my association with internet grew further just as the internet itself. Those were also the times internet was literally growing at astronomical speeds. More and more businesses went online and so are publishers, electronic journals etc., and the way we publish our books and research articles became as simple as the click of a mouse. What was a single server when Tim Berners Lee invented World Wide Web in late 1990 has grown into quarter-million servers by mid 1996 and this unparalleled growth of the World Wide Web also triggered the rapid rise of stock markets and economic growth during late 90s and early 2000 that's when the proverbial dot-com bubble or internet bubble or information technology bubble began to burst, which lead to the crash of global markets. I still vividly remember one of those weekly group meetings where we used to exchange ideas primarily of Chemistry; one of my mentors even brought up a discussion on the internet and how fast it was growing and the total number of web pages of information internet already boasts, etc. Well, a bunch of chemists discussing about the progress of internet – internet has come of age! Another connection comes to my mind in this saga of internet and the World War II as they are intertwined in a way (vide supra), my own visit to the city of Nuremburg during my stay in Germany. The city is famous for Nuremburg Trials, military tribunals held by the Allied forces for the prosecution of prominent members of the political and military leadership of Germany. From here on, internet has virtually revolutionized the way I conduct research and many other activities (blogging, http://www.drsirish.blogspot.com/) on a daily basis just as it did to the rest of the world. I just can’t imagine a day without the internet today and in a way, it has transformed the entire society for the better. As an aside, the indexed web contains at least 4.13 billion pages as on Sunday 27 October 2013 (http://www.worldwidewebsize.com/). As per latest estimate, 39% of world population use internet. While 75 out of 100 Europeans surf the web, this number is followed by 61/100 for North America, 32/100 for Asia & Pacific, and only 16 out of 100 for Africa. 

Shiller, Hansen, and Fama 'Shares' 2013 Economics Nobel

The 2013 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was awarded jointly to Eugene F. Fama and Lars Peter Hansen of of University of Chicago, IL, USA, and Robert J. Shiller of Yale University, New Haven, CT, USA "for their empirical analysis of asset prices," said Nobel Committee in its press release. The trio will share the coveted 8 m Swedish Kroner ($1.2 m) prize money for their pioneering discoveries on predicting the asset prices using empirical models, which provide greater understanding of how financial markets work and stock prices react over a longer periods of time, say 3-7 years horizon. Fama and his colleagues studied short-term predictability of asset prices from different angles and found that the amount of short-run predictability in stock markets is very limited. This has had a profound impact on the academic literature as well as on market practices.

Source: Adapted from "The Prize in Economic Sciences 2013 - Popular Information". 

Nobelprize.org, and citations therein.

Robert Shiller discovered in the early 1980s that stock prices fluctuate much more than corporate dividends, and that the ratio of prices to dividends tends to fall when it is high, and to increase when it is low. This pattern holds not only for stocks, but also for bonds and other assets. Hansen made fundamental contributions first by developing an econometric method – the Generalized Method of Moments (GMM), the findings of which broadly supported Shiller's preliminary conclusions that asset prices fluctuate too much to be reconciled with standard theory, the so-called Consumption Capital Asset Pricing Model (CCAPM). Together, the three Laureates have laid the foundation for current understanding of the asset prices. When asked about his first reaction over telephone by one of the committee members, Professor Shiller expressed his disbelief and replying to a question about the predictability of asset pricing, he felt that there's an element of uncertainty and irreducible human element in predicting what asset prices will do and that's part of the reason why the field of finance will never completely understand asset pricing movements.

Chemical Weapons Watchdog Chosen for 2013 Nobel Peace Prize

The Nobel Peace Prize for 2013 has been awarded to the chemical weapons watchdog, the Organization for the Prohibition of Chemical Weapons (OPCW) for its extensive efforts to eliminate chemical weapons. Founded in 1997 and headquartered in The Hague, The Netherlands, OPCW with its 189 member states is the implementing body of the Chemical Weapons Convention (CWC), the 1925 Geneva Protocol, which prohibited the use, but not the production or storage of chemical weapons. Through inspections, destruction  and by other means OPCW has been playing a buoyant role in implementing the 1925 Geneva Protocol including the most recent and ongoing inspections in Syria.

The OPCW Inspection Team leaving for Syria on 30 September. 

Image credit: opcw.org

Canadian Author Alice Munro Wins 2013 Literature Nobel

The Nobel Prize for Literature for 2013 has been awarded to Canadian author Alice Munro for her contributions in the literary field, what the Norwegian Nobel Committee termed as  “master of the contemporary short story”. Born in the Canadian Province of Ontario, Munro is primarily known for her short stories and has published many collections over the years. Her works include Who Do You Think You Are? (1978), The Moons of Jupiter (1982), Runaway (2004), The View from Castle Rock (2006) and Too Much Happiness (2009). The collection Hateship, Friendship, Courtship, Loveship, Marriage (2001) became the basis of the film Away from Her from 2006, directed by Sarah Polley. Her most recent collection is Dear Life (2012).